Singapore households, businesses should stay vigilant amid more challenging financial conditions: MAS

Domestic indicators of vulnerability for the corporate, household and financial sectors have edged higher, mostly due to the “unwinding of pandemic-induced precautionary buffers”, said MAS.

Calling for heightened vigilance from both companies and households, MAS said households should be prudent, especially when committing to large financial obligations such as mortgage loans.

This is so they can have some cushion against the further tightening of financial conditions that is expected in the coming quarters.

MAS said firms should continue to ensure adequate buffers, including having sufficient liquid assets and efficiently managing the maturity of their debt.

GLOBAL RISKS INTENSIFIED

The annual financial stability review presents MAS’ assessment of the resilience of Singapore’s financial system, informed by its analysis of global and domestic risks and vulnerabilities.

As the world exits the COVID-19 pandemic and markets and the economy adjust, MAS said risks to the global financial stability outlook have intensified.

It identified a “worsening growth-inflation nexus”, with growth expected to slow sharply over the next year while inflation is likely to remain significantly above many central banks’ targets.

The ongoing Russia-Ukraine war continues to generate uncertainty in the outlook for commodity prices and supply chains.

“The most immediate risk is a potential dysfunction in core international funding markets and cascading liquidity strains on non-bank financial institutions that could quickly spill over to banks and corporates,” said MAS.

“Tighter financial conditions and highly volatile markets could give rise to liquidity imbalances that central banks and fiscal authorities need to adequately address to avoid precipitating a disorderly liquidation of assets.”

Debt sustainability of vulnerable households and businesses could come under stress, leading to a deterioration in banks’ asset quality, said MAS. It also highlighted that increasing global risk aversion could cause a further pullback of financing for emerging markets.

But banks are in a better position to manage the credit risks and absorb losses than they were during the global financial crisis of 2007 to 2008, it added.

HOUSEHOLDS AND COMPANIES RESILIENT

Household vulnerabilities rose moderately over the past year, with more property loans and short-term debt – proxied by credit card borrowing – as discretionary spending picked up with the reopening of Singapore’s economy.

MAS assessed that households have “sufficient positive equity and liquidity” to mitigate downside risks in the event of falling asset values and rising debt servicing costs.

Most households should remain financially resilient even with significant income losses and a “full pass-through of sharp interest rate hikes”, while non-performing mortgage loans are expected to remain low.